APL Apollo Tubes slumps despite 12% YoY sales growth in Q2

ICICI Securities while maintaining the “buy” rating on the stock, has raised the target price to Rs 1,930 a share

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APL Apollo Tubes shares were trading lower on October 4 afternoon despite the company clocking its highest quarterly sales volume in the September quarter.

In a business update, the company said its saw a 12 percent growth in sales volume at 6.74 lakh tonne in the second quarter from the year-ago period.

At 1.30 pm, APL Apollo Tubes was quoting at Rs 1,615.15 on the National Stock Exchange, down 1.54 percent from the previous close.

ICICI Securities has a “buy” call on APL Apollo Tubes. It has raised the target price to Rs 1,930 a share, expecting a ramp-up in the existing production capacity at the company’s Raipur plant.

APL’s Raipur plant with a capacity of 1.2 million tonne per annum is one of the world’s largest single-site pipe and tubes facility, it said.

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“Production from the plant is expected to ramp-up progressively: 100 kilo tonne in Q2FY24, 150 kilo tonne in Q3FY24 and 175–180 kilo tonne in Q4FY24. The exit rate in Q4FY24 is likely at 60–70 kilo tonne month, implying capacity utilisation of 60–70 percent,” the brokerage said in a note.

As capacity utilisation at the Raipur plant would improve, “EBITDA/te is also expected to improve beyond Rs 5,000/te in FY25E (our estimate at Rs 5,130/te). Taking cognizance of robust growth prospects, we raise our P/E multiple to 40x (earlier 36x) FY25E,” it added.

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In the June quarter, the company reported a 32.16 percent year-on-year (YoY) rise in revenue from operations at Rs 4,545 crore. Net profit increased 60.33 percent YoY to Rs 194 crore. The operating profit margins contracted by 100 basis points on a yearly basis to 7 percent.

APL Apollo manufactures steel pipes and tubes. Its products are utilized in construction, infrastructure, agriculture, and automotive sectors.

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